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5 Tips to Build Business Credit

Jason Torres, Senior Credit Analyst, First Republic Bank
March 11, 2022

  • A business’s credit history provides insight into its credit health, and lenders consider your credit history when assessing applications for credit.
  • Making payments early or on time and using only a small fraction of your available credit helps build your business credit.
  • Business owners should monitor their business credit reports to quickly identify errors, as well as track their progress in building credit. 

Part of running a small business means managing your company’s financial wellness. This includes learning how to build business credit, which works similarly to personal credit, and provides a snapshot of a company’s credit health and history. Lenders use it to help assess a business’s creditworthiness, and a strong credit history may make it easier to secure financing, such as a business loan or lines of credit. 

Many of the factors that affect personal credit also apply when building credit for a business. However, there are some differences to keep in mind when it comes to business credit. 

How do you establish business credit?

In order to build business credit, you need an established business entity. You'll need: 

Once you have an established business entity, you can start taking steps to build business credit. Below, you'll find five straightforward, easy-to-follow tips on how this can be done.

1. Understand what affects business credit 

Building business credit means developing a track record of positive financial activities, such as paying back your lenders and maintaining a manageable amount of debt. When you apply for business credit — such as a line of credit, business credit card or loan — lenders assess:

  • Reliability: Whether you have a history of paying your creditors early or on time
  • Capital invested: How much the business owner has invested in the business, and a larger investment may be perceived as a greater commitment to the business’s success
  • Credit capacity: The business's ability to repay its creditors
  • Strong personal credit: Business owners with a strong personal credit score, as well as assets that may be used as collateral, may have an easier time securing credit for their business 

2. Establish and maintain vendor credit

Not all vendors report to credit bureaus, but working with those that do offers an opportunity to build stronger business credit. Some vendors may allow you to open a business credit file, such as a net 30 account, which will help you build credit and better control your cash flow.

Net 30 accounts allow you to defer payments to suppliers by up to 30 days, which allows time to collect revenue from your customers before paying back your suppliers. This makes it easier to manage the money flowing into and out of your business while still meeting your obligations to suppliers. Net 30 accounts indicate that your suppliers regularly extend your credit, so each payment offers an opportunity to build your credit history.

3. Pay bills early or on time

Payment history plays a crucial role in building personal credit, and the same is true of business credit. Paying your bills, including all relevant taxes, early or on time signals to lenders that your business can manage cash flow well, has enough money on hand to cover its expenses and has a history of paying creditors reliably.

If your business has net 30 accounts, making your payments within the 30 days — or even earlier — helps establish a strong credit history over time. Late or missed payments, on the other hand, may signal financial distress and negatively impact your business credit score.

Furthermore, paying bills early may offer advantages in addition to their positive impact on your credit. As your relationship grows, vendors may offer discounts for making payments early, for example, or allow you to unlock longer payment terms, such as net 45 or net 60 accounts. 

4. Keep credit utilization low

Lenders also examine credit utilization when assessing a company’s financial health. A credit utilization ratio describes how much available credit the business is actually using. A company using $2,500 of its $10,000 available credit, for example, would have a credit utilization ratio of 25%. 

A low credit utilization ratio indicates that a business has tapped into just a fraction of its available credit and may signal that the company is managing cash flow effectively. A high ratio, which occurs when the business is using a larger portion of its available credit, signals that the business may be under financial stress. 

In general, small businesses should aim to maintain a credit utilization ratio under 10%. Once the business’s credit utilization reaches 30% or more, it begins to negatively impact your score. 

5. Monitor your business credit report

Building a strong credit history means staying on top of your business’s credit. Regularly monitoring your business credit report can help you assess the strength of your credit, gain insight into how best to improve it and identify any errors that might be negatively affecting your score. 

There are two major credit bureaus that compile business credit reports and allow you to monitor your credit report and score:

On each business credit report, you’ll find:

  • Identifying information about your business: Government registration information, ownership information, industry classification and more
  • Credit accounts held by the business
  • Payment history and collections
  • Relevant public filings, such as liens

Some reporting services may also provide your business credit score(s), although these are not part of your credit report. 

Checking your business credit report frequently — every few months — allows you to identify potential errors early and track your progress in building your credit history. If you find discrepancies, collect supporting documentation and contact each credit bureau to correct them. 

How long does it take to build business credit?

Building strong business credit takes time, and the timeline to establishing it is unique to each company. It may take from a few months to up to three years to establish credit, depending on the products or services you need and the creditors you work with. 

The behaviors that build a strong credit history remain the same, no matter where you are in your journey. Paying vendors and suppliers early or on time and maintaining a manageable amount of credit help build your credit history and keep healthy relationships with suppliers, which benefits your company at any stage of the business. 

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